Borrowers must make sure that prior, paid-off mortgages get released 'of record'
In this topsy-turvy world of mortgage financings, refinancings, bank failures, short sales and multiple mortgage assignments, borrowers often overlook the last step in these transactions, which could come back to haunt them. That last step is getting the prior, paid-in-full mortgage released "of record" in the land records office.
Many people fail to understand that merely paying off their previous mortgage is not sufficient. One more step is required to complete the process. Under the laws of most states, including Maryland and Virginia, and of the District, a release must be recorded in the land records office to clear title to the property.
Lenders often, but do not always, send the release to the land records office for recording. Sometimes the lender mails the release back to the settlement lawyer, who is then responsible for getting it recorded. But in other cases, the lender mails the release directly to the borrower along with the borrower's original promissory note and mortgage marked "PAID IN FULL." The borrower is often so happy just to see the original note and mortgage marked "paid in full" that he stores those documents along with the original release in a safe-deposit box and never realizes that a title cloud has just been created.
If no one takes the final step of recording the release of lien, the old mortgage remains as a title cloud against the borrower's property. Most borrowers do not discover this problem until later when they are selling or refinancing their home. At that time, the settlement lawyer conducts a new title search, which will reflect that prior lien as open and unreleased. Often there is time sensitivity caused by a pending sale or refinance, and those transactions will be delayed until someone obtains and records the release for that prior unreleased trust.
A borrower might avoid the stress of an unreleased lien by taking a few simple steps.
First, each time a mortgage is paid off in connection with a sale or refinance, the borrower should ask the settlement lawyer to give him a copy of the written title commitment. That document will list all the liens filed against the borrower's home, the name of the originating lender, the date of the original mortgage, the date it was recorded in the land records, the book and page on which it was recorded, the names of the trustees under the deed of trust and the original principal balance of that loan. (The District files documents differently.) All this information will be required to complete the release.
Second, the borrower should ask the settlement lawyer to promptly record the release and send the recorded release to him after recording it in the land records office.
Third, the borrower should make a note to carefully examine the documents he gets back from his prior lender to see whether there is a release in that package. If there is, mail that original release to the settlement lawyer so he can promptly record it.
Fourth, if neither the settlement lawyer nor the borrower has received the release from the lender within about 90 days after payoff, the borrower or settlement lawyer should contact the lender to request the document.
In the District, lenders who fail to deliver a release within 30 days of written request are liable to pay a $50-a-day penalty to the borrower, plus damages and lawyers' fees. In Virginia, if a lender fails to record or deliver a release within 90 days of payoff, it is subject to a $500 penalty payable to the borrower.
In Maryland, a mortgage lien can be released by recording a certificate of satisfaction or by recording the original promissory note marked "paid" or "canceled." Lenders who fail to deliver a release within 30 days of written request may be sued by the settlement lawyer responsible for the payoff and may be required to pay legal expenses.
Harvey S. Jacobs is a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord, settlement lawyer and lender. This column is not legal advice and should not be acted upon until legal counsel has been consulted.